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Dealing with invoicing is hard. Depending on your personality, you might feel embarrassed about requesting money. Clients often don’t pay right away and will need several reminders. Everyone will have to deal with a client who just won’t pay at some point.
Keep in mind that an invoice is just another way to communicate with your client. You are just letting them know what they are paying for, how much to pay, when to pay it by, and how to pay. They are a necessary and natural part of doing business.
Table of Contents
- Setting your rates
- Ways to Invoice
- Scope / Deliverables
- Reimbursable / Expenses
- Late Payments
- Actionable Takeaways
- Additional Resources
Setting your Rates and Fees
Thanks to the 1990 Sherman Antitrust Act – which was intended to prohibit monopolies – finding out exactly what other architects charge for their services is a murky endeavor that is largely done by word of mouth. This act determined that the fee schedule published by the American Institute of Architects was essentially price fixing and, consequently, illegal.
What all this means is each architect must figure out their own rates. This can be difficult. Here are two things to keep in mind when determining your rates:
- Focus on locals. Talking to other architects in the area will give you rates that are applicable to your local economy. You can talk to architects in other areas but use them as a guideline and adjust for your local rental costs, gas prices, food costs, etc.
- Don’t copy rates you find online – use them as a guideline. Again, those rates won’t be specific to your economy or they could be completely made up.
Figuring out a good rate to charge your client can be complicated, but it’s also one of the most important things to get right. Read our guide to architectural fees here.
Ways to Invoice
An invoice is an itemized bill that lists all the services rendered and the associated costs. There are many ways to structure your invoicing, but the following four are the most common. What you use will depend on the project, your personal preference, and the client’s expectations.
- Fixed Fee
- By Phase
- Hourly by role
- Hourly by activity
Fixed fees, or lump sums, are typically only used with small projects when the scope is clear and won’t change. In this case, you would send an invoice for the total cost of the project at the end.
For savvy architects, you can invoice a partial amount at the beginning and the rest at the end. Once you become super savvy or really well-known you can bill entirely up-front.
Chances are when organizing a project, you divided it up into phases, with different milestones indicating the end of a phase. Commonly, these phases are programming, schematic design, design development, and construction documents.
Allocate a percentage of the total budget to each phase to organize the fee over the whole project. Each invoice should indicate the percentage of the total fee due for that invoice, e.g. 25% of schematic design, and should explain the services rendered in that phase. With this method, you don’t have to track hours, but you are locked into the fee initially agreed upon.
Charging hourly rates is straightforward but can become difficult. Clients often don’t understand the number of hours needed on a project and may push back when the invoice comes in.
Most projects will have an hourly cap, or not to exceed amount, included in the contract. The client knows that they won’t be charged higher than that cap and you can allocate the appropriate number of hours to each task. Some firms will charge an hourly fee at the beginning of the project or during the design phase, move to a fixed fee for the schematic design through the construction documents phase, and switch back to hourly for the construction administration phase.
Hourly by Role
When invoicing hourly by role, each staff member – from the project manager to interns – is listed with their hourly fee and the number of hours they worked for the time period listed on the invoice. Example: 50 hours Project Manager ($125/hr.), 390 hours intern ($75/hr.).
Hourly by Activity
Sometimes, it makes more sense to categorize the hours on your invoice by activity and not by role, e.g. 20 hours meetings, 150 hours drawing, 20 hours management. You might use this when your firm is small, and everyone is doing a mixture of tasks.
Keep your invoice clean and simple, so it’s easy to read and understand. Don’t use all caps. It’s much easier to read regular text. Use a size font large enough so anyone can read it. You don’t want your clients to have to hunt for how much to pay you – hunting could equal a delay in payment. You also want it to look professional, so don’t send in anything handwritten or sloppy.
Creating a template for invoices will make the process easy and quick. In general, each invoice should include:
- Your name and address
- Name and address of the client
- An invoice number or other way to keep track of your invoices
- Description of the deliverables or services provided
- An itemized list of expenses
- Total amount due for the invoice
- Terms and conditions of payments (due dates, fees for late-payments)
- Payment method
Sometimes clients will provide you with an invoice template. Using them probably speeds up payment, which is always a good thing.
Scope / Deliverables
An extremely important part of an invoice is the description of the deliverables or services provided. You want to provide enough detail, so your client gets a clear understanding of what you provided and what they are paying for. However, going into too much detail could encourage your client to start nitpicking at all those details.
It also helps prevent scope creep, which is where items outside of the scope are added under the original fee. Scope creep often happens by accident. We may forget what is and is not included in the scope. Sometimes we say yes to things before realizing it’s outside of the scope. By detailing the scope completed in your invoices, you can manage scope creep.
Any items added to the scope, either as a one-time, additional charge or as a regular addition to the scope, should be listed as such in the invoice. Being clear about the services performed will set client expectations and reduce confusion.
Reimbursable expenses are simply the items you, the architect, had to spend money on in order to work on the project. Billing your expenses keeps you in business – if you give away money by eating the costs, you will quickly run out. These costs must be specific to that project and can’t include general costs to run your business like, insurance costs, rent, electricity, and staff.
It can include any travel costs like mileage, food, plane tickets, hotels, rental cars, and parking. Extra office expenses can also be billed such as plotting/printing, photocopies, and shipping costs (UPS, FedEx, U.S. mail, etc.). Just keep in mind that these expenses cannot be billed if they are a part of your regular overhead.
You should have a list of the rates for all your typical expenses and they should be provided to the client at the beginning of the project. Some clients have items they will or will not reimburse. A great example is alcohol. Most clients will not reimburse for alcohol consumed on a business trip; some will allow one drink with dinner. Providing your rates early on will allow the client the chance to object to or allow specific expenses.
Usually, the rates for travel will be the cost plus a reimbursable multiple fee charge (we will explain more about that later), e.g. the cost of a plane ticket plus an extra 25%. Mileage is typically a cost per mile. This accounts for more than just gas – it includes the wear and tear to the vehicle. Many businesses use the standard mileage rates from the IRS for their mileage rate.
Office expenses like photocopies or shipping costs will be a flat rate per item, e.g. standard letter photocopies are 24 cents per page. These costs include the cost of the actual paper and ink and the time it took the staff to print and collect that photocopy. The rates you use should be unique to your firm and consider the costs of services and items in your area.
If you run into a client who is reluctant or nit-picky about expenses, explain that the reimbursement rates were provided and agreed upon at the beginning of the project. It’s good practice to include your typical reimbursement rates with each invoice. Disagreements over expenses can be tricky, so good communication will prevent squabbles about expenses.
Reimbursable Multiple Fee Charge
Sometimes, architects will charge an additional fee – typically around 25% – on top of the actual cost of a reimbursable expense, called a reimbursable multiple fee charge. This is to cover the cost of paying staff to keep track of the costs and receipts on a project.
It could also be used to cover the cost of driving to the post office or other administrative tasks that might not be covered. This is a normal business practice for architects, so don’t be shy about including this in your invoicing.
Markup is a percentage you add to the base cost of an item to allow you to profit on the sale of the item. Markup is applied to items or services you don’t create yourself – you are just the middleman. The markup will ensure you profit from every part of your business and is an additional revenue source.
An example of markup is when you subcontract out part of the design, like videos of 3D models, and charge the client an additional markup added to the amount you pay the subcontractor. Leverage relationships with material and furniture vendors to provide furnishing or materials. Any markup should be included on your invoice and be sure to talk to your CPA to be sure you're including an sales taxes applicable in your state.
The scariest question for most: what to do when your invoice doesn’t get paid on time? First, if this is the first time for a client, don’t assume the worst. Often the person who approves the invoice payment is not the same person who got the invoice. Your invoice could pass through many hands before payment is sent and it could be stuck or forgotten along the way. A polite email reminding them is often enough to get things rolling again.
Having terms included in your contract, like a late payment fee, will give you actions to take and words to say. The client has already agreed to them, so stick with what is put in the contract. Resist the urge to automatically work with people or waive fees just because you feel uncomfortable enforcing the terms of the contract. Doing so could diminish the contract and encourage the behavior in the future.
At the same time, be a human and recognize that your client is made up of humans too. Has one of the employees of a long-time client experienced a death in the family? It might be a good time to work something out.
Continue to follow up until the invoice is paid. Around 60 days after the due date, you can have a lawyer send a demand letter. After the letter, if you still haven’t seen payment, you can either:
- Send the bill to a collection agency
- Sue the client for non-payment
- Write it off and move on
Invoice Factoring Agency
This is a fourth option if you think you might not get on-time payment. An invoice factoring agency will provide loans using the invoice as collateral. Most agencies will give you 85% of the invoice value upfront and the remaining 15% later. Invoice factoring agencies are only recommended if you really need access to the cash immediately, as the interest collects quickly and can cost your business a lot of money.
One major benefit of an invoice factoring agency is they often act as a collection agency and can help you get paid. They typically take on the business of pestering late clients, which is worth the extra cost for some.
- Create a list of your rates and your possible expenses and include them in the original contract and in your invoice.
- Which is the best way to bill for your project: by phase, hourly by task, hourly by role, or a lump sum?
- Make your invoice clear and easy to understand.
- Are you requesting reimbursement for all the things you should?
- Is there anything you can add a markup to?
- Develop a plan for dealing with late payments and put that plan in your contract.
- Reimbursable Costs/Fees
- Invoice Factoring: Pros, Cons & How it Works
- How to Follow Up When A Client Doesn’t Pay An Invoice
- Guide to how architects charge for their services
- What Does Markup of Cost Mean?
- Billing and Client Communication
- Invoicing on Architectural Projects
- Architects: 7 Ways To Get Paid Faster by Improving Your Invoicing
- Fee Distribution over Project Phases
- Scope creep